Despite doom-and-gloom reporting, not every homeowner in the U.S. has negative equity right now. And with interest rates still hovering near record lows, those with equity are likely asking themselves whether it’s a good time to refinance. Well, is it? Let’s take a look:
- Average interest rates on 30-year fixed-rate mortgages fell to 4.51% a week ago (according to the Mortgage Bankers Association’s latest survey), the lowest level since last fall.
- The average outstanding home loan carries an interest rate of about 6% (Freddie Mac’s Chief Economist Frank Nothaft told The New York Times last week).
So if you took advantage of low rates last fall or in 2009, you probably won’t see much savings by refinancing now. But if you haven’t yet refinanced since 2008, you might want to check in and see what kind of savings refinancing might afford you.
Cashing out: What’s enough equity?
Refinancing used to almost always mean the owner was taking some cash out in the process. That’s because values had climbed pretty steadily (and steeply in many areas) for several years in a row – so most homeowners could afford to cash out to maybe send their kid to college, work on a new addition to the house or remodel. But today, the story is much different.
Even if you have equity, it may not have climbed enough for cashing out to make sense. In fact, the NYT reports that some owners are even putting cash in to up the equity on their homes.
So what’s enough equity by today’s standards? Times have changed and 20% is once again a magic number. Many lenders aren’t even going to allow you to cash out if it means dipping below that.
Refinance options for the equity starved
OK, but what if you have less than that? Can you still refinance to take advantage of low rates?
The good news is that there are some programs out there that may make this possible. If you have little or no equity, you can ask your lender about the Home Affordable Refinance Program. If you have an FHA loan, you can check out FHA Streamline Finance, which may make sense for you.
So even if your equity is pretty low, there are options. Point is, with rates this low, it’s a good time to sit down and discuss whether refinancing would improve your loan situation. We all know that rates are fleeting and what’s here today may be gone tomorrow.